


CERTAIN IMPORTANT PROVISIONS 


OF THE 


Public Utilities Law of Wisconsin 


AND THE RESULTS OF THEIR OPERATION 


ADDREsS 
BY 
JOHN H. ROEMER 
of the Milwaukee Bar 


Chairman of the Railroad Commission of Wisconsin 


TRANS- MIssIssIPPI COMMERCIAL CONGRESS 
22ND ANNUAL SESSSION 
Kansas Crry, Mo., Nov. 16, 1911 


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CERTAIN IMPORTANT PROVISIONS OF THE PUBLIC 
LARILEA ES LAW +OF «Wi SCONSIN, AND THE 
Keouuls; OF “THEIR -OPERATION. 


INDETERMINATE PERMIT. 


That public utilties are virtual monopolies is the principle 
upon which the Publie Utilities Law of Wisconsin is based. The 
theory that free competition is essential to the public welfare 
was abandoned and that of regulated monopoly substituted. 
Whatever diversity of views may still exist as to the wisdom of 
this policy, it can not be successfully controverted that potential 
competition has ever been a feeble and inefficient means of en- 
forcing either the common law or the contractual. obligations 
which public service corporations owe the public in respect to 
charges and service, and that actual competition has almost uni- 
versally been short-lived and inevitably resulted in economic 
waste and entailed an unnecessary burden upon the public, as 
well as financial loss on the investors in the securities of the com- 
peting corporations. It-would therefore seem that any system of 
publie supervision that may be devised, in order to be just and 
effective in its operation, should recognize the economic fact that 
public utilities are natural monopolies, and should protect them 
from ill-advised and ill-designed competition. 

At the very foundation of the Wisconsin system lies a uniform 
indeterminate franchise, denominated ‘‘an indeterminate per-. 
mit,’’? which gives the corporation a legally protected monopoly. 
It can never be deprived of its property unless the municipality 
determines to acquire the same, and then just compensation 
must be paid therefor, which is fixed and determined by the 
Commission. Franchises of this character are regarded with 
favor by all who have given the best thought and consideration: 


to the subject. 
04184 


—4— 


Dr. Wiucox, in his work on Municipal Franchises,! says: 

“The best kind of franchise is one that is indeterminate as 
to time, and one that reserves to the city the right of revocation 
at any time upon condition that the city purchase the plant and 
property of the company at a reasonable valuation, not includ- 
ing any franchise value, but with a provision for a bonus over 
cost, in case where the purchase is made before the property has 
been fully developed as a paying enterprise.’’ 


When the law was enacted it provided that all future grants 
of franchises by municipalities should be indeterminate permits. 
As to existing franchises, it gave the corporations the privilege 
of surrendering them and receiving in leu thereof indetermi- 
nate permits. In a recent case? the supreme court had under 
consideration this feature of the law, and discussing the reasons 
which led to its adoption, said: 

‘“The confusion created during the years preceding the pub- 
lic utility law of 1907 by granting franchises in several different 
Wways,—some directly by the state, some by cities as state agen- 
cies, some by the state in the main but with power to the various 
municipalities as state agencies to add supplementary features, 
fitting particular situations, some by the state without regard 
to local police regulations, and some likewise having such regard, 
either expressly or by necessary implication, some having con- 
tractual features creating doubt in regard to their constitutional 
status, and some having such features but without doubtful 
character, many of such matters being, in the ultimate, more or 
less detrimental to consumers, whether public or private, and 
proprietors as well,—in the whole, created a perplexing situa- 
tion in respect to harmonious administration. The legislature 
sought to deal efficiently with this mixed situation, the growth 
of years, by taking over existing franchises with the consent of 
owners, compensating them for co-operating to that end by con- 
ferring in each case of surrender a new franchise to do the 
things privileged under the old one with conditions referable 
only to the law itself, and so providing that subsequent original 
franchises conferred in whole or in part through state agencies 
would be likewise referable. 

‘“* * * Doubtless, we reiterate, it was thought that sound 
policy required old franchises with their multiplicity of differ- 
ences to be brought under one system so that the things formerly 
privileged might continue to be so but solely under conditions 
and limitations referable to a single standard, to wit: the public 
utility law, with its administrative board to dominate the situa- 


—$ 





1 Vol. 1-215. 
2 La Crosse v. La Crosse Gas & El. Co. 1911, 145 Wis. 408. 


—_vo-— 


tion as between the owners of privileges and the public, to the 
end that each might be coerced, if need be, to deal justly with 
the other, accomplishing an era of fair exchange of equivalents 
involving service being furnished customers of the best character 
and at the lowest price practicable and without discrimination, 
and rendition therefor of such just and reasonable compensation 
as under the circumstances of each situation would enable per- 
formance of the mutual obligations practicable.”’ 


During the four years immediately following the enactment, 
but ten per cent of the corporations availed themselves of the 
privilege of exchanging their franchises for indeterminate per- 
mits. This apparent reluctance to make the change, although 
contrary to the anticipation of the legislature which passed the 
law, was not due to any apprehension on the part of the manage- 
ments that the indeterminate permits were less valuable to the 
corporations than their secondary franchises, but rather to a 
doubt as to the power of the corporations to surrender privileges 
which had been hypothecated to secure outsanding bond issues. 
Thus, most of the surrenders were made by corporations who 
were able to secure the consent of the bondholders or who were 
able to retire or refund their bond issues. It was very evident 
that many years would be required to carry out the purpose of 
the law respecting uniformity of franchises throughout the state, 
and, hence, the recent legislature, acting under the power re- 
served in the constitution to alter or repeal corporate franchises, . 
and under the police power, amended every franchise, making it 
an indeterminate permit. So at present, assuming the validity 
of the act converting all franchises into indeterminate permits, 
there is uniformity in franchises throughout the state, and, in 
consequence, all public utilities are subject to all the provisions 
of the Utilities Law. 


VALUATION. 


Another important feature of the law is that requiring the 
Commission to value the property of every public utility devoted 
to the public service. This is essential in order to determine 
the capitalization upon which rates are to be estimated. With- 
out such a basis the regulation of rates would be practically 
impossible. However, in view of the many theories advanced 
for determining capitalization no specific rule is prescribed by 


scsi se 


the statute. The act merely commands the Commission to value 
‘all of the property of every pubhe utilty actually used and 
useful for the convenience of the public,’’? and to make a sepa- 
rate valuation of all the physical property of such utility so used 
and useful. Every element of value, both tangible and intang- 
ible, is to be considered in reaching a result, excepting only 
franchise values, which are necessarily excluded by the general 
pohey of the law. The object to be attained is the fair value of 
the property as a going concern. This, in the contemplation of 
the statute, is the proper capitalization upon which returns must 
be allowed. 

In this discussion it will not be possible to give more than a 
brief consideration to the method employed in making such 
valuation, which perhaps differs in some essential respects from 
that heretofore generally in vogue. The elements usually avail- 
able for consideration are the original cost of construction, the 
amount expended in permanent improvements and extensions, 
the reproduction cost and the same less depreciation, and the 
going value. In arriving at a fair and equitable appraisement 
of the physical structure, the Commission has considered, as more 
or less controlling, the reproductive cost based on the average 
prices of material and labor for the five years immediately pre- 
ceding the time of appraisement. Such basis eliminates the ef- 
fect of sudden and marked fluctuations in market prices, often 
due to temporary causes, and experience has shown this to be 
the best means of arriving at fair averages. The results thus at- 
tained have been so obviously just and equitable that the munici- 
palities and the utilities generally have acquiesced therein. 
Nevertheless, for the sake of comparison and illumination of the 
subject, the reproductive cost based on current prices is also con- 
sidered. The Commission has never confined itself to any one 
basis to the exclusion of others in reaching a conclusion. Every 
factor bearing upon the subject is carefully weighed and such 
importance given to it as the situation in the light of all the cir- 
cumstances demands. While a norm of universal application 
might be desirable, yet, from the very nature of the undertaking, 
such is impossible. In the last analysis, enlightened judgment 
and ‘conscience must be applied to the facts in hand if a just. 
determination is to result. 


sy (yi 


GOING VALUE. 


There is a tendency on the part of some to regard the repro- 
ductive cost less depréciation as the only proper basis of cap- 
italization upon which returns should be computed. This, in 
most instances, would be so unfair that it could probably not be 
sustained if assailed upon constitutional grounds. Old enter- 
prises, which have yielded large profits for many years, could 
not justly complain if their returns should be based upon the 
present fair value of their physical structure, but when the losses 
incurred in the developing pericd of the business of any public 
utility have not been requited, it would be doing grave injustice 
to the investors in such concern to so limit the returns upon the 
capital actually and prudently sunk in the enterprise under eco- 
nomical administration. We have taken the position, in certain 
cases, that the losses necessarily incurred in building up the busi- 
ness during its formative period are a legitimate charge against 
the public and should in such instances be considered in fixing 
rates. It is my personal opinion that unearned depreciation, 
unearned interest on the investment, and any operating charges 
that have not been paid out of operating revenues, from the in- 
ception of the enterprise until it reaches the point where the 
operating revenues are sufficient to pay fair returns on the legiti- 
mate investment, are generally as much a part of the value of 
the active property as interest, taxes, insurance, and other fixed 
charges incurred during the period of construction. The former 
may often be computed accurately from the records available 
and constitute the cost of establishing the business on a profitable 
basis. It is, in fact, the cost incurred in converting the property 
from a static state to a dynamic state, and forms the monetary 
measure of going value. Whether the full amount of such losses 
should be allowed in any given case, depends upon all the facts 
and circumstances surrounding the same. 

It has been objected to this method of estimating the going 
value that the deficiency of revenue may be the result of impru- 
dent management. As was stated in one case, 


“The company may have purchased a plant larger and more 
expensive than necessary; current rates of interest may have 
been abnormally high; many causes which have absolutely no 


3 Contra Costa Water Co. v. Oakland. 1911, 113 Pac. 668, 676. 


ig Waa 


relation to the value of a company’s business now, as a going 
concern, may have increased or diminished the deficiency in rev- 
enue. Furthermore, if it be conceded that early deficiency of 
revenue is the proper measure of value for the present going 
concern, then it follows that the greater the deficiency and the 
more unprofitable the business, the greater the present value of 
the going concern; and, if the business had yielded large profits 
from its very inception, the going business today would be worth- 
less.’’ 


The objection is not without force, but it implies that the 
public, by its patronage, gives the enterprise its going value. 
Granting this assumption to be correct, it would seem that, in 
dealing with the charges exacted of the public for the services 
rendered, it would be manifestly unjust to enlarge the basis 
upon which to compute returns because of any increase in patron- 
age without a corresponding increase of investment, and yet the 
logic of the objection necessarily leads to such result. But in 
considering profits as the criterion by which to determine the 
enhancement of value which should be allowed because of the 
utility’s being a going concern, there results a confusion of 
the conception of going value with that of franchise value. The 
latter depends entirely upon profits; the former does not. The 
property may have a going value at the time of appraisement 
though it may not yet have reached a self-sustaining basis, but 
it certainly would have no appreciable franchise value under 
such circumstances. So, as between the public and the corpora- 
tion or other proprietor, there should be no enlargement of cap- 
italization for earning purposes for any reason other than be- 
cause of actual investment necessarily and prudently sunk in 
building up the business under proper management. 

Valuations under contracts of sale and in condemnation pro- 
ceedings have frequently been made, and wherever the same have 
come before the courts for review and the question has been 
raised, it has been held that the property must be appraised as 
a going concern. In a recent case,t the supreme court of the 
United States, considering a contract of sale, said: 


‘‘The option to purchase excludes any value on account of 
unexpired franchises, but it did not limit the value to the bare 
hones of the plant, its physical property, such as its lands, its 
machinery, its water pipes, or settling reservoirs, nor to what 


4QOmaha v. Omaha Water Co. 1910, 218 U. S. 180, 202. 


it would take to reproduce each of its physical features. The 
value in equity and justice must include whatever is contributed 
by the fact of the connection of the items making a complete 
and operating plant. The difference between a dead plant and 
a live one is a real value, and is independent of any franchise to 
go on, or any mere good will as between such a plant and its cus- 
tomers. * * * That there is a difference between even the cost 
of duplication, less depreciation, of the elements making up the 
water company’s plant, and the commercial value of the business 
as a going concern, is evident.’’ 


But in rate cases the contention is often made that a distinc- 
tion should exist between a valuation for earning purposes and 
one for selling purposes. This may be true, should the sale be 
from one private person to another, but such sales are usually 
made to the public, and, hence, the reason advanced for such 
differentiation, as a rule of general application, has never ap- 
peared to me sound, and particularly so if the enhancement of 
value of the physical property, because of its being a going con- 
cern, is gauged by the actual amount necessarily invested in the 
enterprise and required to carry the property until it reached a 
paying basis. Why, on the one hand, the public should be com- 
pelled to pay the principal of such investment when it acquires 
the property, and yet, on the other hand, be exempted from pay- 
ing interest thereon so long as it does not choose to purchase the 
same, has not yet been satisfactorily explained. If this element 
of value, however measured, arising out of the fact that the 
utility is a going concern, is property within the provision of 
the constitution inhibiting the taking of private property for 
publie purposes without just compensation being first made to 
the owner thereof, it would necessarily follow from the holding 
of the courts that such property could not be denied earning 
capacity, for to deprive one of the right to earn upon private 
property devoted to a public service is equivalent to the con- 
fiseation of the property itself. It is safe to say that there is 
no authority in existence of controlling weight which sustains 
any such doctrine. Here and there an isolated dictum may be 
found indicating such view, but in the very few instances where 
the question has been a vital one in the case, the courts have 
adhered to the logic of the fundamental rulings of the supreme 
eourt of the United States. 


ae] Cee 


Thus, in a recent rate case,® it is stated: 


‘* An established railroad system may be worth more than its 
original cost and more than the mere cost of its physical repro- 
duction. It has passed the initial period of lttle or no return 
to its owners, which, of greater or less duration, almost always 
follows construction and is not infrequently marked by default 
and bankruptcy. The inevitable errors in its building which 
finite minds and hands can not avoid, have been measurably cor- 
rected, time and effort have produced a commercial adjustment 
between it and the country it was intended to serve, relations 
have been established with patrons, and sources of traffic have 
been opened up and made tributary. In other. words, the rail- 
road, unlike one newly constructed, is fully equipped and is 
doing business as a going concern. It has attained a position 
after many experiences common to railroad enterprises which 
entail loss and costs not paid from current earnings, and which 
correspondingly make for value.’’ 


In another case® of like import, the court, after quoting at 
length from the case* of Monongahela Navigation Co. v. United 
States, proceeded as follows: 


‘*Tt is true this was a condemnation proceeding, and the ques- 
tion was to determine what was just compensation for the appro- 
priation of corporate property to a public use, while the case 
before this court relates to the fixing of water rates which shall 
be a just compensation for the appropriation of complainant’s 
property to a public use. It is not perceived that there is any 
difference in the principles applicable to the two cases.’’ 


Again, in a leading case® recently decided by the supreme 
court of Oklahoma, Mr. Justice Havss, speaking for the court, 
said : 

‘“‘The uneontradicted evidence in this case discloses that 
appellant’s plant for the years preceding the first hearing, 
failed to produce revenue sufficient for operating expenses, cur- 
rent repair, and lay aside an amount for depreciation. During 
the time of development there is a loss of money actually ex- 
pended and of dividends upon the property invested. How shall 
this be taken care of? Must it be borne by the owner of the 
plant? Or by the initial customers? Or shall it be treated as 
part of the investment or value of the plant constituting the 
basis upon which charges shall be made to all customers who 
receive the benefits from the increased service rendering power 


5 Missouri, K. &€ T. Ry. Co. v. Love, 1910, 177 Fed. 493. 

6 Spring Valley Waterworks v. San Francisco, 1903, 124 Fed. 574, 594. 
TAR Ue les 

8 Pioneer Tel. & Tel. Co. v: Westenhaver, 1911, 118 Pac. (Okla.), 354. 


so Sse 


of the plant by reason of these expenditures? It seems that the 
last solution is the logical, just and correct one. If rates were 
to be charged from the beginning so as to cover these expendi- 
tures and earn a dividend from the time a plant is first operated, 
the rate to the first consumers would be in many instances. if 
not in all, so exorbitant as to be prohibitive and would be so at 
the time when the plant could be of least service to them. On 
the other hand, the pubhe cannot expect as a business proposi- 
tion or demand as a legal right that this loss shall be borne by 
him who furnishes the service; for, investors in public service 
property make such investments for the return they will yield; 
and, if the law required that a portion of the investments shall 
never yield any return, but shall be a total loss to the investor, 
capital would unwillingly be placed into such class of invest- 
ments; but the law in our opinion dces not so require. Private 
property can no more be taken in this method for public use 
without compensation than by any other method. When the use 
of the property and the expenditures made during the non-ex- 
pense paying and non-dividend paying period of the plant are 
treated as an element of the value of the property upon which 
fair returns shall be allowed, then the burden is distributed 
among those who receive the benefits of the expenditures and 
‘the use of the property in its enhanced value.’’ 


The modern rule on the subject as it may ultimately be estab- 
lished by controlling judicial authority is perhaps foreshadowed 
by Proressor WyMAN in his recent work.? on Public Service 
Corporations. He states it concisely as follows: 


‘“‘The physical connections of its plant, the cost of fitting it 
for its purpose, the loss of interest on the investment during 
construction and until the plant is in complete and lucrative 
operation, all add an actual value to the plant and are properly 
included in the construction account and form part of the actual 
capital employed in the enterprise.’’ 


MUNICIPAL PLANTS. 


A distinctive feature of the law is that of placing all munici- 
‘pal plants under the supervisory powers of the Commission to 
‘the same extent as privately owned plants. The wisdom of this 
policy is no longer disputable, for no greater benefit has been 
‘bestowed upon the public by regulation of public utilities. than 
that resulting from the operation of the law upon municipal 


9 Vol. 2, sec. 1102. See also Cumberland Tel. & Tel. Co. v. Louisville, 
1911, 187 Fed. 637; Des Moines Water Co. v. Des Moines, 1911, not yet 
‘reported in Federal Reporter. 


BS aie 


pubhe utilities. Under the law municipalities are obliged to: 
keep their accounts according to the system prescribed by the - 
Commission for all utilities, to report to the Commission in like: 
manner as managers of privately owned plants, and to conform 
to all the rules, regulations and requirements of the Commis- 
sion. No distinction is made between municipal plants and 
private plants in the matter of regulation. As a consequence of 
such uniform supervision, inestimable benefits have resulted to 
the public. These may be considered briefly under the heads of 
accounting, service, and cost of operation. 


ACCOUNTING. 


The system of accounting prescribed by the Commission has. 
for its basic principle such classification as will enable the as- 
certainment of the cost of service. Although it is self-evident 
that no business of such character can be successfuly conducted 
without an accurate knowledge of the cost of rendering the 
service in which the utility is engaged, it was surprising to learn 
‘that while the best conducted privately owned utilities had in 
a measure recognized the importance of such information and 
had somewhat imperfectly attempted to ascertain the same, the 
majority of the managers of municipal plants had generally 
been wholly oblivious to the necessity of any such knowledge. 

This lack of efficiency has been due partly to various causes,. 
many of them beyond the control of the municipal utility plant. 
The first of these is the question of organization and responsi- 
bility. A part of the public utility function or department of 
city government is frequently administered by a superintendent, 
board of public works, engineer, board of commissioners, or com- 
mittee of the common council, and it is frequently difficult to 
ascertain just where the duties of these individual city officials 
begin and end. 

Again, the matter of rotation in office seriously interferes with 
continued efficient management. Executive rather than iere 
administrative ability is necessary in order to successfully con- 
duct the utility plant, and it is to be regretted that the occasional 
good executive must be made the sacrifice to party policy. 

Accounts pertaining to municipal plants were often merged 
_with other accounts of municipalities, and even where separation 
was made the accounting was so crude and inaccurate that it was 


ugh 


unpossible to ascertain therefrom even approximately the cost of 
any Glass of service. In this connection it may be said that the 
system of accounting prescribed by the Commission, although 
differing from that heretofore generally in vogue, has met with 
general approval among managers of privately owned plants, and 
those in charge of municipal plants who have endeavored to ad- 
minister the affairs of the plant upon a sound business basis. 
In fact, a number of the larger plants throughout the country, as 
well as Canada, have voluntarily adopted the Wisconsin system 
of accounting. 

Installation of a system of bookkeeping to conform with the 
prescribed accounts of the Commission has been necessarily a 
somewhat difficult task, especially in the case of municipal 
plants. Many of the smaller utilities which had hitherto evi- 
dently not seen the necessity of recording their transactions in a 
businesslike manner, have taken time to adjust their books to 
the accounting requirements. 

The local authorities in control of municipal utilities were 
at first slow to respond to the demands of the Commission, ex- 
cept in the most progressive communities. In some instances it 
appeared that those in charge of such plants were apprehensive 
that proper methods of accounting might result in disclosures 
reflecting upon the capacity or integrity of the management. In 
other instances there seemed to be no one in the organization of 
employes capable of keeping a set of books intelligently. This 
was particularly true where the management changed with the 
municipal administration. However, in practically every com- 
munity where the management was entrusted to a non-partisan 
board whose personnel was more or less permanent, there was 
no difficulty in securing hearty co-operation in putting into ef- 
fect the prescribed system of accounting. Such boards were 
quick to recognize the benefits that would be derived from a uni- 
form system of accounting. As the various plants are classified 
according to size, comparison of results of operation between 
plants in the same class has proven of inestimable value to the 
managements of all plants, whether publicly or privately owned. 
By studying the accounts of the various plants the Commission 
is enabled to become familiar with the details of operation of 
each plant, and to point out to the managements economies that 
may be adopted and improvements that may be made in the con- 


Nap bs 


duct of the business. It may be said that the more progressive 
managers examine the reports made to the Commission by the 
various utilities with the greatest care and scrutiny, for the pur- 
pose of ascertaining their own deficiencies of administration and 
learning a means of rectifying the same. 


SERVICE. 


In the matter of the regulation of service, the work of the 
Commission has been most effective. Standards of service have 
been established .to which every utility is required to conform 
strictly. To detect violations of the rules relating to service, the 
inspectors of the Commission are constantly traveling through 
the state making secret inspections. These rules differ materi- 
ally from those in vogue in other states and countries. They 
place the responsibility for the character and quality of the serv- 
ice primarily upon the utility, which is required to test its own 
meters and make various other specific tests of the quality of 
the service prescribed in the rules and regulations, and also to 
keep a record of the results of all such tests, which must be kept 
open for public inspection. While the accuracy of meters is 
an essential element in the economic use of both gas and elec- 
tricity, the maintenance of adequate pressures is more essential 
to the efficient use of either. Consequently, general systematic 
surveys of gas pressures and electric voltages by means of re- 
cording instruments are made. The gas inspectors are in their 
investigations required to test the quality and purity of gas, 
take records of pressure in various parts of the systems, super- 
vise the testing of meters and calibrate the testing equipment. 
The electric inspectcrs take continuous records of voltage over 
the distribution systems, calibrate the companies’ standard in- 
struments and supervise the testing of consumers’ meters and 
the renewal of incandescent lamps. | 

When the general survey of the service in the state was first 
made, it was found that few of the plants were able to comply 
with the prescribed standards without making alterations and 
improvements. Hundreds of thousands of dollars were spent 
by the different utilities in order to bring their equipment to the 
point where compliance with the rules of service was possible. 
Many of the managers of the municipal plants were reluctant to 
make the necessary changes in order to improve the quality of 


their service; nevertheless, through persistent i1mportuning and 
threats of prosecution on the part of the Commission, the neces- 
sary changes are being made gradually, and additional equip- 
ment installed where necessary. 

There are forty gas plants in the state which are under the 
control of the Commission and subject to regular inspection. 
As a result of the improvement in the service, the heating value 
of gas has been increased from five to thirty per cent. The pres- 
sure has been rendered adequate. Without considering any 
change in rates for gas, but solely through the increase in heat- 
ing value and pressure, the consumers of gas in the state are re- 
ceiving from fifty thousand to seventy-five thousand dollars more 
annually in value of service than previously. 

At the time that systematic inspection was undertaken, only 
about fifteen of the two hundred and fifty electric plants in the 
state, serving some fifteen thousand consumers, were giving rea- 
sonably satisfactory voltage. In order to comply with the re- 
quirements of the rules of service, about forty plants had to be 
generally overhauled and practically reconstructed. In the re- 
maining plants it was necessary to install governors, automatic 
voltage regulators, and additional transformers, and also to 
make extensions and changes in the structure of the plants and 
distribution systems. Some of this work has not yet been com- 
pleted and it may be stated that about fifty thousand consumers 
of electric current out of a total of seventy-five thousand are 
now receiving satisfactory electric service as measured by the 
preseribed standard. In this connection it must be borne in 
mind that the-state regulation of voltage is new and that work 
similar to this in scope has never before been attempted. While 
the money-saving to the consumer resulting in an increase in the 
heating value of gas may be accurately estimated, the saving in 
electric current due to uniform adequate voltage is difficult of 
exact determination. For example, a foot of gas containing six 
hundred heating units will do twenty per cent more work than a 
eubie foot of gas having a heat value of five hundred heat units. 
Where voltage is defective, the increase of the voltage to meet 
the standard requirement increases the hght correspondingly. 
This renders the service more satisfactory. There is, however, 
as a result of the improvement of service, according to the vom- 
putation of the engineers of the Commission, a money-saving of 


at least seventy-five thousand dollars annually to electric con- 
sumers. 

About eighty per cent of the water works in the state of Wis- 
consin are municipal plants. Most of the activity of the Com- 
mission in respect to these has been directed to the testing of 
the quality of the water supply, the accuracy of meters and the 
sufficiency of pressures. Careful investigations are made of the 
character of fire streams and the adequacy of the systems to fur- 
nish necessary fire protection. It has been discovered that with 
the growth of the communities there has not always been a cor- 
responding development of the water systems and enlargement 
of pumping stations, and as a result the plants become ineffi- 
cient to render proper service. At times, discord in municipal 
councils over water works affairs has arisen and delayed mak- 
ing the necessary improvements required to meet the needs of 
the communities. In one of the larger cities of the state a con- 
troversy of twenty years’ standing over the source of the water 
supply, which had been a polluted river, prevented necessary 
extensions of the distribution system being made and, in conse- 
quence, a large portion of the city was without adequate fire 
protection. A part of the community favored the installation of 
a filtration system, while the remainder contended that investi- 
gation should be made of the subterranean waters for the pur- 
pose of ascertaining whether a sufficient supply of permanently 
pure water of suitable quality could be found and, if so, that 
the river supply be abandoned and the water taken from wells. 
The water question was an issue in every municipal election, 
but neither faction could ever control a sufficient number of the 
members of the common council or of the voters to authorize a 
bond issue for carrying out their ideas. Finally, at the instiga- 
tion of the mayor, twenty-five citizens filed with the Commission 
a petition against the city, praying for an order compelling the 
city to make the necessary improvements in the water works and 
to supply the citizens with pure, wholesome water. In the 
course of the investigation, an expert of the Commission caused 
to be sunk a number of test wells for the purpose of determin- 
ing whether an adequate supply of suitable water could be ob- 
tained from subterranean sources. An-excellent underground 
water supply was discovered at a point within easy access of the 
city which could be developed at a very moderate cost. Upon 


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the completion of the investigation, the Commission made its 
report wherein the city was ordered to take such steps as were 
necessary to develop the water supply discovered, reconstruct 
its plant and extend its system. Upon the receipt of the report 
of the Commission, the common council unanimously voted the 
necessary bond issue and placed the work in the hands of an 
engineer. It will not be long until this city will have an ade- 
quate water system supplying its inhabitants with one of the 
best waters that can be found anywhere. 

The attitude of the Commission’s engineering staff in dealing 
with those who are directly responsible for the operation of the 
various utility properties about the state might perhaps be 
supposed to be that of the more or less confirmed critic, but the 
fact is that pointed criticism and even drastic treatment is made 
use of only where the circumstances call for such action. It 
may be stated, as a general proposition, that the relation be- 
tween the Commission’s inspection staff and the plant operators 
is, almost without exception, one of mutual assistance and satis- 
faction. 

The process is distinctly cumulative in its efficiency and help- 
fulness. The inspectors are chosen with particular reference 
to their qualifications in operating matters, and are given an 
opportunity to observe and analyze the routine problems of the 
plant operator under a wide range of actual conditions. More- 
over, the special training ground of the Commission’s staff is not 
restricted to the limitations of a single state, for the reason that 
to a certain extent it has been found practicable to respond to an 
ever-increasing demand from other states by releasing individual 
members of the staff for brief intervals of time for service in at- 
tacking similar problems which are continually arising through- 
out the country. The men engaged in this so-called missionary 
work necessarily acquire added impetus and enthusiasm in re- 
suming their duties on the Wisconsin staff. 

It goes without saying that the owners of small utility prop- 
erties, either municipal or private, rarely make provision on 
their own account for expert advice for the guidance of their 
employes in direct charge of plant operation; and even in the 
comparatively few instances where the owners of small plants do 
independently employ expert advice, the professional service is 
of a non-continuous character and, unfortunately, does not al- 


Nn | Bs 


ways escape the commercial taint. It will, of course, be agreed 
that professional advice wisely purchased should be paid for as 
a legitimate operating expense by those who are directly bene- 
fited, viz., the purchasers of the service rendered by the plant. 
Whether the expense involved in providing contiuuous profes- 
sional service along the lines practiced in Wisconsin should be 
paid for directly as a local operating expense, or indirectly 
through a technical staff controlled by the state commission, is. 
believed to be a matter of great :practical importance. In Wis- 
- consin, it is interesting to note, the use of a state technical staff, 
having a state-wide range, has led to an extensive increase in 
the intelligent and efficient use of high grade professional ad- 
vice employed independently, and usually voluntarily, for the 
purpose of increasing operating efficiency along lines suggested 
by the enforcement of the Commission’s standards for adequate: 


service. 
Cost OF OPERATION. 


The question is frequently ,raised as to how far the decisions. 
and orders of the Commission have improved efficiency of opera- 
tion and effected savings to the utility plant. While it is al- 
ways difficult to make estimates of this character and to localize. 
the responsibility for such savings, it is safe to say that the- 
tendency of the regulation has been in the direction of encour- 
aging greater efficiency and of rewarding the efforts of the util-- 
ities interested in effecting such savings. 

To begin with, the necessity for public cost-keeping has led 
of necessity to closer scrutiny of operating expenses. Extrava- 
gant salaries, excessive expenses for promoting new business, 
ete., are not willingly included in the type of detailed operating 
expense exhibits required by the Commission where there is the 
probability that such an exhibit will be reviewed by the banker, . 
the stockholder and the consumer. The provisions that stores. 
and supplies must be separately accounted for until they are- 
actually used in the operation or construction of the plant, and 
the additional provision that labor costs be subdivided over the 
separate duties performed, have prevented many losses which of 
their nature could not have been detected with a less compre- 
hensive system of accounts. 

Likewise, the adoption of more scientifie rate schedules has. 


fe a 


improved operating conditions by encouraging the long-hour 
user, thus enabling a better use of the plant investment. No- 
where has this been more apparent than in the case of municipal 
utilities. Unproductive labor costs and losses due to the neces- 
sity of holding the plant in readiness to serve the consumers 
have been reduced, the cost per unit of output has been lessened 
and a further reduction in rates has thus been made possible. 
This work of adjusting schedules to the requirements of indus- 
tries yielding increasing returns is showing substantial results. 
Utilities throughout the state are beginning to recognize that a 
reduction in rates may lead to an increased return under a 
schedule which will develop the plant to its full capacity, and it is 
becoming customary for managers of plants to come to the Com- 
mission asking for “‘the kind of schedule which will develop the 
business. ”’ 

Similarly, the work of service inspection has frequently led 
to suggestions of a rearrangement of the plant, especially the - 
distribution system equipment. These suggestions, it is noted, 
have often resulted in the reduction of the amount of gas, elec- 
tricity and water lost and unaccounted for, and have, conse- 
quently, effected a substantial saving. 

Perhaps the greatest economies have been brought about by the 
insistence on the part of the Commission that services be metered 
wherever possible. The rate for unmetered service generally 
leads to abuse of the service; rates must be made correspond- 
ingly higher to offset the possibility of an occasional extravagant 
customer, and as a result there can be no incentive to economize. 

* * * 


In conclusion, it may be said that intelligent regulation of 
’ public utilities requires engineering, accounting and statistical 
skill of a high order. Those entrusted with the work of investi- 
gation and study of the various subjects presented for considera- 
tion must have scientific knowledge in -the respective branches 
or departments of utility management and operation. With a 
competent staff of experts in the different lines of service en- 
gaged constantly in examining plants throughout a state, it is 
possible for the regulating board to bring to the solution of 
every problem arising a breadth of vision and experience that is 
invaluable both to the public and to the utility. No regulation 
can be effective which is not based upon accurate information 


NC 


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and which is not actuated by a sense of justice and equity. In 
the ight of the past it must be conceded that an independent 
tribunal, free from local influences and prejudices, and assisted 
by a corps of trained experts, is better qualified to efficiently 
regulate public service corporations and individuals engaged in 
public services than any municipal council. There is also econ- 
omy in central control. One body can serve all municipalities 
as well as one municipality, and serve them better. Besides, 
the cost of the necessary organization of experts to deal with 
the matter would be prohibitive to most municipalities. 

The Public Utilities Law of Wisconsin was enacted with a 
view of placing public utilities upon a sound economic basis and 
eliminating all unnecessary friction between the public and such 
concerns due to causes arising from ignorance of the economic 
status of public utilities and their moral and legal relations to 
the public. After four years administration of the law, the re- | 
sults obtained from its operation have been generally satisfac- 
tory. Experience in Wisconsin seems to indicate that public 
regulation may prove advantageous to the business interests of 
utilities as well as to the general interests of the public. 





